How To Save Money on Almost Anything!

Summary: Knowing how to save money on all your purchases will help you buy the important things, such as financial freedom. (Tweet This!)

Last week, I wrote about Spending Less Than You Earn, and how there are two components to that... spending less money and making more money. I'd like to dive in a little deeper into the area of saving money today.

When I think about how to save money, I look at my spending in five areas: big one-time purchases, small daily purchases, recurring monthly expenses, and the medium cost splurges, and outings. Today, I'd like to touch on how these five categories impact your overall financial picture.

Save Money on Big One-Time Purchases

Save Money buying a House

Save Money buying a House

It's hard to downplay how much shelter costs. Even if you are renting and not buying, your home is likely to represent a large chunk of your spending. There are a lot of ways to save money on housing. That article gives a few tips such as living in an area with a cheaper cost of living and choosing a smaller home.

For most people, the other big purchase aside from a home is a car. It isn't unusual for a car payment to be up to ten percent of a person's take home salary. A couple of ways to reduce that is to buy a cheaper, used, brand that has already depreciated in value. A three year old Hyundai is going be a lot cheaper than a new BMW. Don't expect the used Hyundai to compete with a new BMW, instead try to focus on how much financial freedom you'll be earning.

Cars and homes typically add up to 40% of the average person's income. Those two purchasing decisions will make a huge impact on your financial freedom.

Here's one final tip to save money on these big purchases: have good credit. Few people buy cars and houses without taking out a loan. When you get a loan, you want to pay as little as interest as possible. The best way to do ensure that is having good credit. A person with bad credit pays a lot more for the exact same purchase... and that earns them a nomination for the Be Worse Now Hall of Shame.

Save Money on Small Daily Purchases

David Bach's The Automatic Millionaire famously coined the term, Latte Factor, by examining how people can get rich just by reducing or eliminating small daily expenses. Of course the key example of a small daily purchase is... wait for it... the morning latte. It may not seem like much, but $3 a day adds up over time. If you make your own coffee at home and bring your lunch to work that can be a savings of $10 a day or around $3500 a year. Investing $3500 a year goes a long way towards any financial freedom goal. With the power of compound interest it may be enough to fund a retirement.

Save Money on Recurring Monthly Expenses

Much like the small daily purchases, these add up over time. Some monthly expenses like utilities are pretty hard to escape - although you can certainly do a lot to lower those costs. I like to call these necessary expenses. Others like to call them their monthly nut. These are things that you really need to have every month such as: housing, transportation, utilities, food, insurance.

There are also the unnecessary monthly expenses like cable television, Netflix, or a wine club can add up over time. I'm not going to ask you to give up your entertainment, but reducing and eliminating these costs will fast track you to financial freedom. (You noticed the trend to financial freedom, right?).

Somewhere in the middle of the necessary and the unnecessary sits the Internet connection. I require it for my business, so it is necessary just like transportation to a job, but I also get a lot of entertainment from it. That's why it is one of the last things that I'd look to eliminate.

Save Money on Medium Cost Splurges

This is where I group the "everything else" that I spend money on. I, like many people, really enjoy technology gadgets. So this means that I have to have the latest smartphone every year or so. In addition, there are costs for video game systems, new laptops, tablet computers, etc. This isn't to say that you should avoid all these things - I think you simply need to be consciously aware of these expenses. A few hundred dollars here and there really crowd that credit card statement. I've started to look for cheaper ways to get gadgets such as buying a used previous generation version on Craigslist.

Save Money on Outings and Entertainment

The last area that seems to eat up money is what I like to call the "outings" category. Some example "outings" include going to a restaurant, going to a concert, or going to a bar with friends. A few outings per month can add up to a couple hundred dollars very quickly. These tips for saving money at restaurants may save you a thousand dollars a year.

It's all a game of balance. I'm not suggesting that you avoid buying your dream home, a nice car, or a tablet computer. I'm not trying to ruin all your fun. I enjoy concerts, sporting events, and the theater (well let's not stretch it) as much as anyone. I'm asking that you be conscious of your spending and think about what your goals are with money. For me, having a safety net that allows me to go a year without working and building towards an extremely early retirement are top priorities.

Photo Credit: Apartment Therapy

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